Series 6 Exam Study Questions – Flashcards
Unlock all answers in this set
Unlock answersquestion
What factors determine the number of annuity units an investor will receive after annuitizing a variable annuity?
answer
1) The payout option 2) Assumed interest rate (AIR) 3) The annuitant's age 4) The annuitant's gender
question
Who must sign a new account form?
answer
The two signatures required on a new account form are from the registered representative and the principal.
question
What is the purpose of the form U-4?
answer
The purpose of the form U-4 is to register a registered representative with a member firm.
question
Businesses that do better in bad economic conditions are _________.
answer
Counter-cyclical
question
Registered representatives are prohibited from receiving "off the book" compensation from a wholesaler. T or F
answer
True
question
What is the red herring?
answer
A preliminary prospectus that includes material information about an offering and contains an estimate of the range within which the final offering price is to be set.
question
What is maximum contribution per year into an IRA? What is the penalty for any excess contribution?
answer
Maximum contribution = $5000 Penalty = 6% of excess amount and earnings on this amount are not tax-deferred
question
What are the characteristics of a contractual plan?
answer
1) Required periodic investments 2) Automatic reinvestment of distributions 3) Protection for plan completion
question
What is the penalty for an early withdrawal from an IRA? What is the age requirement for withdrawal?
answer
Penalty = 10% on the taxable portion of the withdrawal, and is also reported an taxed as income that year. Age = 59 1/2
question
What exceptions would waive the penalty of an early withdrawal from IRA?
answer
The IRA holder: -Dies -Becomes disabled -Uses the money for the purchase of first home (with a $10,000 lifetime limit) -Uses the money to pay certain medical or qualifying medical insurance premiums.
question
Who backs general obligation bonds?
answer
General obligation bonds are backed by the full faith and credit of the issuer.
question
Why are cash dividends and capital gains taxed at a preferential rate?
answer
They are not considered ordinary income; therefore, they are taxed at preferential rates.
question
Where are contributions placed in a fixed annuity issued by an insurance company?
answer
The insurance company's general account.
question
Why are treasury receipts NOT a direct obligation of the U.S. government?
answer
Treasury receipts are created by brokerage firms by depositing Treasury securities with a trustee and selling securities that are backed by this collateral.
question
What is "selling dividends"?
answer
Selling dividends occurs when a registered rep encourages a customer to purchase shares of a mutual fund right before it distributes a dividend and/or capital gain.
question
What is the dollar limit on a dispute for it to be labeled as simple arbitration?
answer
Disputes involving less than $100,000 are handled through simple arbitration.
question
What is the maximum allowable sales charge on a mutual fund?
answer
The maximum sales charge allowable by FINRA on a mutual fund is 8.5%
question
SIPC coverage provides each separate customer with protection up to $________, of which no more than $________ can be for cash balances.
answer
$500,000 $250,000
question
Who is able to contribute into a Keogh Plan (HR-10)?
answer
People that are self-employed and those who receive self-employment compensation, such as a contract worker, are able to contribute to a Keogh Plan.
question
What is the frequency for contract renewal for a fund's investment adviser?
answer
An investment adviser has two years to establish itself as effective. Assuming the contract is renewed after 2 years, the investment adviser will then be subject to sharehold or board approval every year thereafter.
question
When should a prospectus be presented for both a closed-end fund and an open-end fund?
answer
According to the Act of '33, the closed-end fund is required to make a prospectus delivery with any new shares sold. Open-end funs are in permanent new issue mode, which means a prospectus must be provided for the first purchase of each new investor.
question
A sales charge reduction, once over the breakpoint, applies to only the amount over the breakpoint. T or F
answer
False. If the purchase exceeds the breakpoint established, then the entire amount is subject to the lower sales charge.
question
What are the three tiers of NASDAQ?
answer
1) NASDAQ Global Select Market 2) NASDAQ Global Market 3) NASDAQ Capital Market
question
Common stockholders have the right to vote for ___________ and ______________.
answer
1) Board of Directors 2) Stock Splits
question
What disclosures are required in a bank broker-dealer ad?
answer
1) Securities are not FDIC insured 2) Securities are not deposits or other obligations of the financial institution and are not guaranteed by the financial institution 3) Securities are subject to investment risk, including possible loss of the principal
question
Bondholders can change their holdings into stock of the same company. T or F
answer
True. A convertible bond gives the bondholder the right to trade in their bond for shares of common stock of the same company.
question
What tax form reports the payment of divdens and interest?
answer
The reporting of dividends and interest is covered on IRS Form 1099.
question
Can a Registered Representative modify any contents of a prospectus?
answer
No. They may not alter or modify the contents of a prospectus.
question
What income limits allow a person the ability to fund a Coverdell Education Savings Account?
answer
Individuals with an AGI below $95,000 and joint filers with an AGI below $190,000/
question
When is a mutual fund required to send out a statement of additional information?
answer
They are only required to send it out if the customer makes a special request.
question
What is used in calculating a bond fund's SEC yield?
answer
1) Most recent dividends and interest earned by the fund 2) A deduction of the fund's expenses 3) Most recent 30-day period covered by filings with the SEC
question
How is net yield (after-tax yield) calculated?
answer
Taxable yield x (100% - Tax Bracket)
question
The earnings of a Section 529 Savings Plan are taxed as ______________ and a __________ will be assessed if they are not used for qualified education expenses.
answer
1) Ordinary Income 2) 10% Penalty
question
Front-end loaded funds have the highest initial cost and the lowest expense ratio. T or F
answer
True. Sales charges and expense ratios are in inverse proportion to one another. High sales charge creates a lower expense ratio.
question
How does current yield measure how hard an investor's capital is working?
answer
It compares the coupon payments to the price paid for the bond.
question
What is the calculation for current yield?
answer
Annual interest / Current Market Price
question
On a T-Bill, what is the maturity time, the frequency of interest payments, and the pricing structure?
answer
Initial maturity: 30 days to 1 year Interest Payment: None - issued at a discount Pricing: Discounted yield basis
question
What is the percentage sales charge calculation?
answer
(Public Offering Price - Net Asset Value) / (Public Offering Price (POP-NAV)/POP
question
When is the ex-dividend date for a mutual fund?
answer
The next business day after the record date.
question
What is the record date?
answer
The record date is the day used to determine who will receive the distribution. If you are a shareowner as of the close of business on the record date, you will receive the distribution.
question
When must a mutual fund make payment to a customer requesting redemption?
answer
An investment company is required to send payment to a customer within 7 calendar days of the customer's request for redemption of shares.
question
What is the capital structure of an open-end fund?
answer
An IPO with continuous issuance and redemption of shares.
question
What is the only fund that is available for purchase on margin?
answer
Closed-end funds are the only funds that are available to be purchased using margin. They may be bought on margin only after 30 days have elapsed since their initial public offering.
question
What three things must you have in order to complete non-discretionary order for a customer if they are not present?
answer
1) Name of stock 2) Amount 3) Time
question
Contributions made into sectin 529 plans are considered _________.
answer
Gifts. These contributions are considered gifts under the federal tax code.
question
What is dollar cost averaging?
answer
The purchase of a fixed dollar amount on a regular schedule.
question
What is the maximum amount an open-end fund could borrow from a bank to meet its liquidity need for short-term redemptions?
answer
33% of its NAV (1/3 of NAV). It is often expressed as a minimum 300% asset to debt ratio.
question
Insider trading rules apply to who?
answer
The prohibtion against insider trading applies not only to those who work for an issuer, but to anyone who is tipped off by an insider.
question
What is the maximum that can be contributed into a Keogh plan?
answer
The maximum contribution into a Keogh plan each year is 20% of self-employment compensation or $49,000 whichever is less.
question
If YTM of a bond is greater than the coupon rate, then the bond is a ___________.
answer
Discount bond. If Yield To Maturity is greater than the coupon (nominal) rate, then it is on discount. If YTM is lower than the nominal rate, then it is a premium.
question
In order, what are the expiration time frames for options, warrants, and rights?
answer
1) Rights: 30 days 2) Options: 9 months 3) Warrants: May not expire for years; sometimes no expiration date.
question
How long must records of advertising and sales literature be kept on file?
answer
All records of advertising and sales literature must be kept on file for three years.
question
What are the options for switching to something other than a variable life insurance policy?
answer
Under federal regulations, variable life policy holders must be allowed to convert their contracts into whole life policies for a minimum of two years. Variable policies have a 45-day "free look" provision.
question
What are you prohibited from doing as a holder of a limited representative license?
answer
Series 6 registered individuals are prohibited from taking part in equity transactions and secondary market transactions of closed-end share on either the buy or sell side.
question
As a Registered Representative, what is the rule for reporting outside employment?
answer
RRs are required to notify their employers of any outside employment, whether securities related or not. Volunteer activities are not subject to this rule.
question
Who is responsible for approving mutual fund sales literature that is mailed to a customer?
answer
All advertising and sales literature is approved by a firm's designated principal.
question
Class A shares are not entitle to a "free look" provision. If a customer wants to refund his purchase, then what will they receive?
answer
The customer will receive the next calculated NAV for each of the shares the customer wishes to liquidate. The customer will not receive a refud of any sales charges.
question
Since "private activity" bonds are considered "tax preferred items" by the IRS, what are the tax implications?
answer
Private activity bonds are Industrial Development Bonds (IDRs) and are subject to an alternative minimum tax (AMT).
question
What payout option on a variable annuity would maximize an annuitants retirement income?
answer
The straight life payment option provides the largest monthly payment for a given contract value.
question
If a mutual fund investor reinvests all of her dividend and capital gains distributions, how is she taxed?
answer
Her cost basis is adjusted based on the reinvestment, and the distributions are taxable in the year they are received.
question
What fund serves as a hedge against inflation?
answer
Generally, precious metals have been the option for investors looking to avoid the hardships of inflation. In the past, when inflation has gone up so has the price of precious metals.
question
What is the formula for calculating net asset value of an accumulation unit of a variable annuity?
answer
Total net assets divided by total units issued.
question
What percentage of a fund's board of directors must be unaffiliated with the fund?
answer
75% of the BOD must be unaffiliated (disinterested).
question
Is a Series 6 licensed RR able to sell common stock?
answer
No. A RR is able to sell mutual funds, unit investment trusts, and certain insurance products ( provided he holds the appropriate state insurance license).
question
What is the proper titling of a UGMA registration?
answer
(Custodian name), custodian for the benefit of (Minor's name), UGMA - (State)
question
Define reserve requirement.
answer
The ratio of cash on hand to overall deposits by which banks must abide.
question
How many socials assume tax responsibility on a joint account?
answer
All taxable events would be reported under a designated (primary) Social Security number that belongs to one of the owners.
question
What is a 12b-1 fee and what shares can this be assessed on?
answer
This fee is used to offset distribution expenses and are assessed against the assets of the fund at a prescribed annual percentage rate. It may be assessed on Class A, B, C, and no-load shares.
question
After a FINRA hearing panel determines that a registered person has violated a FINRA rule, it can impose prison time on the registered person. T or F
answer
False. A FINRA hearing panel does not have the power to impose a prison sentence.
question
In an account with tenants in common registrations, the fractional interest are always of equal amounts. T or F
answer
False. Ownership of the account may be equal (50/50) or unequal (one person 40% and the other 60%).
question
Options do no exist for mutual funds. T or F
answer
True.
question
What two investments cannot be place in an IRA?
answer
Life insurance and collectibles cannot be place in an IRA, however, U.S. minted gold coins are an exception.
question
When can you appeal a Hearing Panel decision and who do first appeal with?
answer
Within 25 days of a Hearing Panel decision, the person appeal the decision with the National Adjudicatory Council (NAC)
question
What are the limitations and privileges of a preferred stock?
answer
1) Pays a fixed annual dividend, usually quarterly 2) Trades more like a bond than an equity 3) Normally does not have voting rights 4) Has preference over common stock in the payment of dividends and in case of corporate liquidation.
